Business Strategy, People Strategy and Total Rewards—

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Vol. 44, No. 9 September 2007

Business Strategy,

People Strategy and

Total Rewards¡ª

by Stacey L. Kaplan

?2007 International Foundation of Employee Benefit Plans

M

any executives are quick to introduce a new compensation or benefit program because they¡¯ve heard about it in the news or through one of their colleagues. However,

this program may just be the latest ¡°plan du jour,¡± not fitting within their organizaContinued on page 13

Business Strategy, People Strategy

Continued from page 1

Setting the Stage:

Understanding Your Business

There are many factors influencing the

formulation and execution of a sound

business strategy. When thinking about

strategy, one must look forward and visualize how the organization might evolve.

The strategy provides the ¡°roadmap,¡± articulating the organization¡¯s overall business direction. What is the mission of

your organization? A mission statement

describes its overall purpose¡ªwhat you

do, who you do it for and how you do it.

Executives may labor

for hours drafting the most

articulate mission and vision

statements, but this exercise

alone will not drive the

organization forward.

ments, but this exercise alone will not

drive the organization forward. Other

critical questions must be asked and answered relating to customers, competition, culture and the company¡¯s position

in its lifecycle.

Economics 101 taught us about the

typical business lifecycle of emergence,

growth, maturity and decline. Emerging

and growing companies execute their

strategies differently than mature companies or those in decline. It is important for

an organization to understand its current

position in its lifecycle and determine if it

wishes to compete in that position or

strive to change it. For example, banking

traditionally has been considered a mature industry; however, with other financial services companies offering competing services (e.g., insurance companies,

¨‹

Many human resources (HR) professionals aspire to forge a ¡°strategic partnership¡± with their top management.

However, this expression appears diluted

upon observing HR executives buried in

¡°administrivia,¡± focused on operational

tactics rather than business outcomes.

For HR executives to play the esteemed

role of ¡°strategic partner,¡± they must

demonstrate business knowledge. This

knowledge includes not only how a forprofit entity earns its money or, in the

case of a nonprofit, how it fulfills its mission, but also how it serves its customers

and differentiates itself from its competitors. Too often, that knowledge is lacking.

Top management will continue to exclude even the most experienced HR directors from boardroom discussions until

they exhibit financial literacy and business acumen. When HR professionals

demonstrate their understanding of what

is driving their business, they will add

value by mobilizing the right workforce

with the right skills to achieve the business goals of the enterprise.

credit unions), banks have revamped

their thinking, and some have changed

their business strategy to contend with a

new set of competitors.

Some organizations face the challenge

of managing businesses across multiple

lifecycles. Superior Energy Services, a

New Orleans-based provider of specialized oilfield services and equipment serving the oil and gas industry, encompasses

both mature and emerging business

units, resulting from several acquisitions

over the past few years.

According to Ray Lieber, vice president

of HR, ¡°We¡¯re required to tailor our business and people strategies to our business units, since our company is comprised of both growth-oriented and

mature business lines. Although we are a

growth company, some of our business

units have reached a more mature cycle

due to the nature of their services and

current geographic operating areas.¡±

In their writings about general business strategy, Benjamin Tregoe and John

Zimmerman from Kepner-Tregoe, Inc.,

identify ¡°driving forces¡± that propel organizations to accomplish their goals

(see Table I). Although the authors name

nine possible driving forces, typically

only one or two serve as the basis for

business strategy, determining the types

of products and services offered and the

markets in which they are offered. For example, financial institutions and auto

manufacturers are product driven, committed to increasing the quantity and

quality of their products. Consumer

products and retail organizations are

driven by market needs. Organizations

that are technology driven focus on developing products and services that are

based on the latest technological advances. Production-driven companies focus on maximizing their production capacity, such as hospitals striving to fill

beds and airline carriers aiming to occupy seats. Knowledge of an organization¡¯s key driving forces keeps it focused

on its path to execute its business strategy.

When companies formulate their

business strategy, they determine how

they intend to compete in the marketplace. Over 20 years ago, marketing guru

Michael Porter defined competitive strategy as ¡°being different¡± and identified

COMPENSATION

tion¡¯s strategic direction. It is important to

identify and implement programs that

bring an organization further along its

strategic path. This article strives to ¡°connect

the dots¡± among business strategy, people

strategy and total rewards. It describes the

value of integrating these initiatives and the

value that a total rewards strategy brings in

the achievement of business goals. It presents a ¡°how-to¡± approach in linking the

total rewards¡ªdefined as compensation,

benefits, learning and development, and

work environment¡ªto an organization¡¯s

business and people strategy.

What is your vision? Defining an organization¡¯s vision requires forward thinking,

since it articulates the organization¡¯s desired future.

Along with mission and vision are organizational values that describe what is

important to your organization and serve

as enablers to accomplishing its mission.

They may be qualitative (e.g., teamwork,

respect) or quantitative (e.g., dollars). The

mission, vision and values provide a

foundation for business strategy, but that

is just the beginning of the discussion, as

evidenced by the agenda of just about

every strategic planning session. Executives may labor for hours drafting the

most articulate mission and vision state-

Continued on next page

September 2007 ? ? Benefits & Compensation Digest

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Table I

Driving Forces and Sample Organizations in Alignment

Driving Forces

Sample Organizations

Products offered

Financial services

Production capability

Health care

Market needs

Consumer products

Natural resources

Petroleum

Method of sale

Door-to-door sales

Method of distribution

Manufacturer¡¯s representatives

Size/growth

Conglomerates

Technology

Scientific innovators

Return/profit

Portfolio companies

Source: Kepner-Tregoe and International Foundation of Employee Benefit

Plans.

Sample Questions to Ask Top Management

? What are your mission/vision/values?

? What are your current pressing business issues?

? What is your business strategy? Is it working?

? What are your strengths, weaknesses, opportunities and threats?

? What effect do your customers have on your business?

? What are your current workforce capabilities?

? What will your workforce requirements be in the future?

? How will you bridge the gap between current and future needs?

three ways in which an organization

might compete. These principles are still

valid today. Will they compete on price,

like Wal-Mart (e.g., be the low-cost

provider)? Will they try to differentiate

themselves based on products or services, like Nike? Will they segment the

market and focus on a particular group of

buyers or geographic area, like IKEA? Understanding the competition is a business

imperative. HR professionals are aware of

the competitive landscape from an attraction and retention standpoint but

would benefit from knowledge of their

competitive environment at large.

An initial step for HR to forge a strategic partnership with senior leadership is

to participate in open dialogue about the

organization¡¯s business strategy along

with its short-term and long-term goals.

At left is a list of key questions to ask top

management to understand its current

and future business challenges. This is a

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precursor to establishing a people strategy that defines the resources and capabilities required to execute the business

strategy. The answers to these questions

will provide a framework upon which to

develop a people strategy aligned with

the business strategy.

Solidifying Your

People Strategy

Once the business strategy has been

defined, top management and its subordinate leaders must execute the business

plan. A solid people strategy plays a critical role in moving the company forward

in attaining its goals. A people strategy¡ª

or HR strategy¡ªdefines the resources required to execute the business strategy,

including the competencies needed to

support the objectives of the organization.

This definition relates to the classic phrase

¡°the right people with the right skills.¡± The

September 2007 ? ? Benefits & Compensation Digest

leadership team retains its responsibility

to define the requisite behaviors and skills

and to identify and bridge the gaps between the ¡°as is¡± workforce and the ¡°to be¡±

model.

Aligning people strategy with business

strategy affects how workers are deployed.

For example, Southwest Airlines builds its

business strategy around low operating

costs and stellar customer service. Its people-centric culture enables it to execute its

strategy. Southwest needs a workforce that

embraces customer friendliness and customer satisfaction, and the company recruits individuals who possess strong communications and customer-facing skills.

Regarding job design, Southwest embraces broader roles rather than narrowly

defined jobs to create a more flexible

workforce. The carrier empowers its workers to make decisions with considerable

freedom and responsibility. Worker flexibility, including the ability to demonstrate

skills across multiple job roles, facilitates

customer service.

Business events influence an organization¡¯s people strategy and the composition of its workforce. Events such as

mergers, acquisitions, staff reductions,

plant closures and expansion into other

countries affect the organization¡¯s talent

requirements. If a mature organization

acquires an emerging company whose

competencies lie in innovation and technology, the workforce requirements

change. Leaders must respond by recruiting and developing technically savvy

workers and determining how to keep

them engaged and productive. In the

case of global expansion, required skill

sets may change to execute the business

strategy in another country. This might

include the need for a bilingual workforce with an understanding of the culture and business mores abroad. To be

successful, attraction and retention policies need to be aligned with strategic

business goals.

When Sears, Roebuck and Co. embarked on a business transformation

about ten years ago, it aspired to become

a ¡°compelling place to work, shop, and invest.¡± This slogan demonstrated alignment with its key stakeholders¡ªemployees, customers and shareholders. To

translate its business goals into reality, the

company educated its employees at all

Continued on page 16

Categories of Total Rewards and Sample Components

Table II

Compensation

Learning and

Development

Work Environment

Base salary

Health care

Career planning

Flexible workweek

Annual incentives

Life insurance

Succession planning

Telecommuting

Long-term cash incentives

Disability

Professional memberships

Job design

modifications

Equity (stock options,

restricted stock)

Retirement/401(k)

Training programs

Comfortable

workstations

Spot awards

Child-care resources

Annual conferences

Recognition

programs

Project incentives

Fitness center

Mentoring programs

Community

volunteer

opportunities

Employee referral program

Elder-care programs

Lunch and learns

Casual dress

Signing bonuses

Legal assistance

Sabbaticals

Free meals

levels on its business drivers to engage

them in implementing the retail business

strategy. Learning maps measuring six

feet were used to help employees visualize

services offered by the company and better understand their own role in improving competitiveness and business processes.

NewPage Corporation, an Ohio-based

manufacturer of coated papers, believes

in communicating its business goals to its

workforce of over 4,000 employees. According to Glenn Grill, director of compensation and benefits, ¡°We¡¯ve begun the

process of educating our workforce on our

goals and business model. Both union and

nonunion employees have been exposed

to our organization¡¯s key business objectives in areas such as financial metrics,

lean Six Sigma, customer service and productivity initiatives.¡±

Total Rewards¡ª

Aligning With Business Strategy

and People Strategy

Total rewards encompass everything

that employees value in their employment

relationship¡ªcompensation, benefits, development and the work environment. It

is a holistic approach that aligns with

business strategy and people strategy. In

the last decade, employers realized that

they must go beyond just offering competitive compensation and benefits programs (transactional rewards) to compete

for talent. This is especially true today

16

Benefits

where loyalty of the emerging workforce¡¯s

members is more to themselves than to

their employers.

Compensation and benefits programs

are typically financial in nature and must

be at least at a baseline competitive level

for companies to attract and retain talent.

Competitors easily copy these programs,

which typically fail to engage employees

enough to stay with an organization.

Learning and development programs and

a flexible and fun work environment (relational rewards), however, provide an opportunity for employers to better differentiate themselves from their competition

and enhance employee commitment to

their organization. All four components of

rewards encompass a tool kit for HR leaders to draw upon in constructing a comprehensive rewards program that will provide them a competitive edge. Table II

identifies samples of rewards in each of

the four categories.

Many employers on Fortune magazine¡¯s annual list of the best companies

to work for in America embrace a total

rewards strategy rich in relational rewards, such as flexible working arrangements, developmental opportunities and

fun office perks. This strategy provides

them heightened visibility as a preferred

employer in a tight labor market. Research has shown that higher-rated employers tend to receive more employment applications, making recruitment

easier. Additionally, these higher ratings

often translate into improved retention

September 2007 ? ? Benefits & Compensation Digest

and enhanced profitability, since engaged employees typically provide better

customer service.

Google achieved Fortune magazine¡¯s

coveted number one position on its list of

the best companies to work for in 2007.

No one can dispute Google¡¯s remarkable

business performance. What is interesting

to note is its incredible mix of quirky and

traditional employee perquisites. One can

reasonably deduce that its people strategy

is to drive productivity by attracting high

achievers who are willing to spend most of

their time at work. Its complementary reward strategy is to provide amenities that

enable employees to manage their lives

more easily while maintaining focus on

their jobs. Sample perks include company-paid gourmet meals, a 24-hour gym,

an in-house doctor and concierge services

like dry cleaning and on-site massages.

This strategy makes employees feel valued

and enhances the attraction and retention

of talent that is committed to helping the

company execute its business strategy, regardless of the blur between personal and

work lives.

Volkswagen of America aligns its financial rewards to its business by paying

incentives for the attainment of individual goals related to the achievement of

shared company goals. All employees are

eligible for bonuses.

¡°Our shared critical targets in areas

such as sales, customer and dealer satisfaction, and profitability are aligned both

top down and across business units to

promote positive employee relations.

Aligning these strategies enhances the

likelihood that the retailer¡¯s business

goals will be attained.

Rewards programs are best designed

and implemented after the successful

alignment of an employer¡¯s business

strategy and people strategy, as opposed

to selecting program components in a

vacuum. Too often organizations jump to

the implementation phase without assessing the impact on the business and

people strategies. This results in solutions that are out of sync with their business challenges. There may be trendy solutions written up in the latest trade

journals, but they may not be appropriate solutions for every company.

be counterproductive in an environment

that emphasizes collaboration and team

performance, unless they are well integrated with overall company goal attainment.

An organization¡¯s stage in its lifecycle

influences its people strategy and where

to place its bets from a total rewards perspective.

¡°Our emerging business lines have different needs than in our more mature

units,¡± Lieber said. ¡°In terms of rewards,

one size definitely does not fit all. We are

attempting to design and pilot some nontraditional pay initiatives in our growth

companies, while ensuring that employee

development programs are structured as

a complementary element of the total

strategy.¡±

The Power of Alignment:

Connecting the Dots

For example, when broadbanding was

first introduced as a new, flexible approach to salary administration, some

business magazines wrote about it, highlighting the advantages of fewer, wider

salary ranges and perceived streamlined

administration. Some organizations were

quick to implement this approach without

considering the amount of manager education and monitoring needed to be costeffective. Although a very workable solution for many organizations, it was not a

good fit for others.

Similarly, reward programs need to

be selected that complement the organization¡¯s values and culture. If teamwork

is a key value, then reward programs

should reinforce teamwork versus individual performance. Incentive programs

that reward individual achievement will

¨‹

Aligning business strategy,

people strategy and total

rewards requires education,

communication and

commitment of business

leaders and their teams.

What does the alignment of business

strategy, people strategy and rewards

look like? Imagine this scenario: HR

demonstrates its business acumen and is

invited into the boardroom to participate in strategic business discussions. A

credible strategic partnership emerges

between senior management and HR.

With a solid understanding of the business, HR positions itself to develop and

execute its people strategy, bridging the

gap between current workforce capabilities and future required capabilities essential for organizational goal attainment. HR serves as a catalyst to energize

the workforce, understanding the employee value drivers important for attracting and retaining the right talent to

execute the business plan. HR analyzes

the workforce demographics to understand the composition of the workforce

and changing needs. The results challenge HR to rethink the total rewards

package.

Baby boomer retirements are proliferating, and strong-willed Generation Yers

require different types of rewards. The

emerging workforce values flexibility, opportunities to work on the latest technology and immediate recognition for performing well. HR designs a mix of

transactional and relational rewards, balancing a competitive compensation and

benefits package with innovative learning

COMPENSATION

promote teamwork and organizational

performance,¡± said Lynda Gugel, general

manager of HR.

The company¡¯s development programs also support the achievement of

business results.

¡°We invest in learning and development solutions that align competencies

and behaviors with business outcomes

that most closely support our business

strategy,¡± Gugel said.

Table III highlights the alignment of

business strategy, people strategy and total rewards for a retail chain that wants to

increase its revenue and profits and embraces superior customer service as part

of its business strategy. It scrutinizes its

policies and changes some of them to reflect a more customer-centric approach,

such as liberalized return policies and expanded store hours. The retailer develops

a people strategy to facilitate its goal attainment. One of the key provisions is to

attract and hire store associates who are

actual customers of this retail chain. The

idea is to translate customer loyalty into

associate loyalty by capitalizing on the

positive feelings the customer already has

for the retailer and its brand. A second

provision within its people strategy is to

staff the store for peak periods, utilizing

part-time associates to cover periods of

heaviest traffic volume. Third, the retailer

strives to enhance the selling skills and

competencies of its sales force.

The retailer designs its rewards strategy to align with its business and people

strategy. The retailer decides to provide a

base salary and benefits package at the

¡°going rate¡± in the community. Besides

providing competitive pay and benefits,

it offers a storewide incentive plan to reward team performance, with one of the

metrics being customer satisfaction

scores obtained from a storewide survey.

The retailer offers flexible work arrangements to associates who desire a parttime work schedule. It taps into retirees

and students to help cover peak periods

in the evenings and on weekends. In line

with its people strategy to develop its

workforce, it offers sales training classes

to enhance employees¡¯ product knowledge and sales skills. In turn, a bettertrained workforce enhances customer

service, one of the retailer¡¯s primary business strategies. The retailer offers an employee discount to encourage associates

to continue shopping in the stores and

Continued on next page

September 2007 ? ? Benefits & Compensation Digest

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